2) If you chose upgrade MS says that it should keep your existing files and application, how accurate this will be with your system I am not sure. As always backup

During an upgrade, the Windows XP Setup Wizard replaces existing
Windows files but preserves your existing settings and applications.
Some applications might not be compatible with Windows XP Professional
and therefore might not function properly after an upgrade. You can
upgrade to Windows XP Professional from the following
operating systems: